FP

Final Paper Draft
The Link Between Corporate Social Responsibility and Crisis
Communication - Automotive Car Manufacturers
The Impact of Corporate Social Responsibility on Brand Image and Reputation
Independent Final Paper
Supervisor: Suzan Pecyna
Second Reader: Danielle Walsh
Student: Roland Gebe
Student ID: 15063585
Date:
Table of Contents
1. Introduction
1.1. The Problem
1.1.1 Case Studies
1.3 Research Design
1.4 Central Question(s) and Sub-questions
1.5 Theoretical Framework
1.6 Research Methods
1.6.1 Quantitative Research
2. Situation Analysis
2.1 Micro Environment
2.1.1 Background
2.1.2 Communication Strategy
2.2 Meso Environment
2.2.1 Market Analysis
2.2.2 Stakeholder Analysis
2.3 Macro Environment
2.3.1 Political Forces
2.3.2 Technological Forces
2.3.3 Economic Forces
2.4 SWOT Analysis
2.5 Conclusion
8. References
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1. Introduction
This bachelor thesis has been written for the International Communication Management program
at The Hague University of Applied Sciences. The main purpose of the bachelor thesis is to provide a
sufficient insight into the importance of corporate social responsibility strategy (CSR) of automotive car
manufacturers. The main research question of the paper is to find the key factors which contribute to a
successful corporate social responsibility strategy. Three case studies (Volkswagen's emission scandal,
General Motors` ignition switch recall scandal and Toyota's unintended acceleration scandal) were selected
in order to analyse and understand the fundamentals of corporate social responsibility and crisis
management. These case studies were scandals which have turned into a crisis.
1.1. The Problem
In September 2015, it was found by researchers at West Virginia University that Volkswagen has
been programming their Turbocharged Direct Injection (TDI) diesel engines to pass the emission control
tests in a laboratory. However, during street driving the emissions have risen from the laboratory test up to
40 times (Gates, Ewing, Russell, & Watkins, 2015). After the discovery, the Environmental Protection
Agency (EPA) issued a notice to Volkswagen, where they indicated Volkswagen’s violation of the Clean Air
Act. The Clean Air Act, created in 1970 in the United States of America, is a federal law that regulates
emissions from stationary or mobile sources (United States Environmental Protection Agency, 2017) This
case is also referred to as The Volkswagen scandal.
As the scandal’s beginnings are dated back to 2009 it is estimated to affect around eleven million cars
around the world (Ewing, 2015). In December 2015, Volkswagen’s chairman Hans-Dieter Pötsch declared
that the decision over the emission test was made in 2005 due to EPA’s regulations (Abdelrasoul, 2018).
Finally, Volkswagen has been fined 25 billion dollars in the United States of America (Parloff, 2018) while
the share price has dropped from approximately 170 euros to below 100 (Jagadeesh & Lysaght, 2017).
The Volkswagen crisis is a prime example of corporate social responsibility failure. Due to
Volkswagen’s aim of unfair advantage over competitors, ethical standards in engineering and
environmental responsibility, the company has been lead to a difficult crisis management process (Dans,
2015). The process itself resulted to the resignation of the CEO, Martin Winterkorn, and severe damage to
the company’s reputation and stock price, which dropped by 25% (Muller, 2015).
Corporate social responsibility is a key factor to maintain and enhance the company’s reputation,
attractiveness and overall performance (Famiyeh, Kwarteng & Dadzie, 2016). As Volkswagen has not been
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able to hold the responsibility over their products the consequences have been inevitable. This case study is
an example of the importance of proper corporate social responsibility and how its failure might lead to a
crisis, and thus crisis communication. On the other hand, it is a great case study for examining what
corporate social responsibility stands for and how to solve problems before there might be a need for a
crisis response. Corporate social responsibility is an ongoing process in which the organisation holds a
strategy upon which they based their actions. If this strategy is not fulfilled it might jeopardize the genuine
belief of the stakeholders that the organisation is honest in its principles (Blades, 2011). As Volkswagen did
not manage to meet their corporate social responsibility strategy “We bear responsibility for continuous
improvement of the environmental tolerability of our products and for the lowering of demands on natural
resources while taking economic considerations into account” (Volkswagen Group, n.d.), and thus lead to
harsh conclusions of the Volkswagen’s emission scandal. Therefore, the identified problem is that some
organisations in the automotive industry lack the type of stable corporate social responsibility model that
could prevent an issue from escalating into a crisis (Dans, 2015).
1.1.1 Case Studies
In order to research and analyse the topic properly, other case studies were selected. The first case
study stands for Volkswagen’s Emission Scandal. The second, is General Motors’ Ignition Switch Recall
scandal, which began in February 2014, caused airbags to shut off and therefore do not activate during an
accident (Lawrence, 2017). The failure cost General Motors 2.5 billion dollars in penalties (Stempel, 2017),
their reputation, as 124 deaths were linked to the faulty switches and had to recall over 2.7 million vehicles
(Reuters, 2016). The third case study is Toyota’s 2009 unintended acceleration scandal. The scandal gained
its name based on their cars which started to unexpectedly accelerate (Wasserman, 2014). Toyota agreed
to pay a 1.2 billion dollar fine to avoid prosecution (Ross, Rhee, Hill, Chuchmach & Katersky, 2014) and their
market value declined by 20%, which is a 35 billion dollar market value loss (Austen-Smith, Diermeier &
Zemel, 2011).
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1.3 Research Design
Advice Question
-How can automotive car manufacturers manage the impact of scandals on brand image and reputation ?
Research Objective
The objective of the research is to identify the key factors forming a successful corporate social
responsibility strategy, while analysing the sample automotive car manufacturers’ (Volkswagen, General
Motors and Toyota) scandal response. The research will outline how corporate social responsibility and
crisis communication are linked together. Furthermore, how they can impact the brand image and
reputation before and in conclusion of the actions taken, ending up in a crisis.
By…
-Understanding the fundamentals and core of corporate social responsibility
-Understanding the fundamentals and core of crisis management
-Making an analysis of the crises covered by news media outlets from January 2009 until November 2018
-Making an analysis of brand image and reputation before and after the organisations faced in conclusion of
the events
-Making an analysis of sample organisations’ scandal response
-Understanding the key factors that stakeholders consider to be vital to remain loyal to the brand
-Identifying the best communication channels to reach out to key stakeholders
-Understanding how brand image and reputation is affected by corporate social responsibility, and how
brand image and reputation is affected after a crisis
1.4 Central Question(s) and Sub-questions
Central Question(s)
-What are the key factors which form a successful corporate social responsibility strategy ?
Sub-questions
-What are the weak and strong points in the current scandal responses of the sample organisations from
the automotive industry?
-What theory contributes a guideline to follow, and does the guideline align with the sample organisation's
scandal response?
-What are the key factors that stakeholders of automotive companies consider to be vital in order to remain
loyal to a brand?
-What are the best channels to articulate key messages of a crisis communication plan to private vehicle
owners?
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-Which case studies on corporate social responsibility were viewed as positive in the past- is it applicable
within these cases?
-What were the news media outlets focusing on when given a scandal response from the sample
organisations?
-What is the private vehicle owners` opinion on corporate social responsibility and its effect on a scandal
response?
-What is the perception of private vehicle owners on a brand after a scandal occurred? Would a better
corporate social responsibility strategy be of more significance to maintain the brand image for private
vehicle owners?
-What existing best practice can provide significant insights into the problem and would it be applicable to
the automotive industry?
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1.5 Theoretical Framework
Corporate Social Responsibility and Crisis Management
In order to understand what role does corporate social responsibility have in corporate structures,
Carroll’s (1999) theory shall introduce the core definition of corporate social responsibility and understand
its fundamental parts into details. Together with the Theory of the firm perspective (McWilliams & Siergel,
2001) it will help to understand the relationship between corporate social responsibility and an
organisation's financial performance. The Stakeholder theory which shall understand the decision-making
process of the automotive car manufacturers, whether the organisation was indeed compromising with the
viewpoints, interests and needs of stakeholders, by Friedman & Miles (2006). The Situational crisis
communication theory (Coombs & Holladay, 2012) describes how the crisis influences the stakeholders’
interaction with the organisation. This theory will be used to analyse the consequences of the crisis such as
evidence of damage to reputation of the organisation or the fall of stock for the organisation.
Brand Image and Reputation
The Corporate identity model (Birkigt & Stadler, 1986) can be applied to analyse the organisation or the
brand’s identity and image. Whether every element (behaviour, design and reputation) is aligned with their
vision and mission and how are they communicating it with the public. Keller’s Brand equity model (2003) is
a fundamental model which will help to illustrate how to acquire and sustain customers in order to build
a strong brand perception and relate it with brand loyalty.
Media Framing
Understanding the framing methods of the news media outlets will help recognize how the message is
being shaped into the media and what does it cause to the public’s opinion and viewpoint (Scheufele,
1999).
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1.6 Research Methods
1.6.1 Quantitative Research
Content Analysis of the Crises’ Covered by News Media Outlets
-An analysis of the crises covered by the news media outlets
-Overview of the news media outlets coverage framing of the crises
Online Questionnaire Amongst Private Vehicle Owners
-An analysis of how brand image and reputation is affected before and after a crisis occurs from the
private vehicle owners’ perspective
-Overview of the private vehicle owners’ opinion on corporate social responsibility and its
importance
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2. Situation Analysis
The situation analysis chapter explores the sample organisations’ micro, meso and macro
environment to understand the sample organisations’ internal and external influencers which might affect
their overall corporate social responsibility strategy. During the micro environment analysis the sample
organisations’ background, mission & vision (values) and their communications strategy was discovered.
The meso environment analysis has taken a form of an general examination of the market and a
stakeholder analysis. The macro environment was analysed with a general analysis of political,
technological and economic forces affecting the sample organisations. The fourth part was a general SWOT
analysis, understanding the weak and strong points, as well as the opportunities and threats which could
enforce a successful corporate social responsibility strategy.
2.1 Micro Environment
2.1.1 Background
Volkswagen (VW)
The Volkswagen Group has been established in 1937 in Wolfsburg, Germany. VW was created to
produce the “people’s car”. During the Second World War, the mass production of their cars has been
transitioned into military vehicles, which delayed the organisation’s own brand development
(Britannica,2018). VW owns other brands such as Audi, Seat, Skoda, Bugatti, Bentley, Lamborghini, Porsche,
or Ducati and is, with over 590,000 employees and the production of 49,000 cars daily, one of the largest
car manufacturers in the world (Bowler, 2015). VW’s strategy or the ‘Strategy 25’ identifies the
organisation’s mission and vision statement, which should guide their actions and passion (Volkswagen
Group, n.d.).
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Figure 1. VW’s Mission & Vision Statement
General Motors (GM)
General Motors, headquartered in Michigan, Detroit, has been created in 1907, with now over
180,000 employees and operating worldwide. GM has been a global car manufacturer who focuses on “zero
crashes, zero emissions and zero congestion” (General Motors, n.d.)
Figure 2. GM’s Mission & Vision Statement
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Toyota
The Toyota Motor Company was founded in 1937 in Toyota, Aichi, Japan. Toyota’s subsidiaries are
for example, Lexus, Daihatsu, Subaru Corporation etc.. Toyota is also known for its value system ‘The
Toyota Way’. The value system consists of two pillars: Continuous improvement and Respect for people.
Continuous improvement in the form of challenge, kaizen (essence of continuous improvement, or in other
words- even small changes can benefit the business) and genchi genbutsu (checking the sources yourself).
Respect for people in the form of teamwork and respect between the employees, customers and others to
achieve the goal (Toyota, 2018). Toyota does not state its own mission statement but reinforces its vision
statement (Jurevicius, 2013).
Figure 3. Toyota’s Vision Statement
2.1.2 Communication Strategy
Volkswagen’s Scandal Response
In an article by the BBC News, VW’s American boss Michael Horn scandal response was “We have
totally screwed up,” while the chief executive at the time, Martin Winterkorn said that VW had “broken the
trust of our customers and the public" (Hotten, 2015). After the scandal gained more publicity, VW`s CEO
Martin Winterkorn has resigned on September 23, 2015, while stating that “VW needs a fresh start- also in
terms of personnel” and the company admitted to installing the so-called “defeat devices” in 11 million cars
(Bomey, 2015).
The reaction of the public was immediate, John Decker, aged 55, said: “It just reeks of fraud and
that they intentionally misled the buyers of their vehicles into thinking these were clean diesel,
environmentally good cars, that were fun to drive.” (Mouawad & Jensen, 2015). Furthermore, VW`s
reputation also suffered. The early 2016 poll of the 100 most visible companies in the U.S. shows that VW
has dropped to the bottom from 2015`s “very good” to early 2016`s “very poor” reputation quotient (The
Harris Poll, n.d.). After Martin Winterkorn was replaced with Matthias Müller as CEO in late September
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2015 (Kiley, 2018) the new CEO pointed out that the most important task will be to win back the trust of the
customers, partners, investors and the general public (Timms, 2015). The company stated a net loss of 1.84
billion dollars in the third quarter and it was a first quarterly loss in years if not decades (Ewing, 2015). Two
months after the scandal, VW on November 9, 2015, has announced an offer of 1,000 dollars package to
the customers affected by the scandal, while trying to `rebuild the trust`. The goodwill package contained a
500 dollars in form of a Visa loyalty card and 500 dollars Dealership card, that can be used at engaging VW
dealers (Sloat, 2015). Professor Erik Gordon, from the Ross School of Business in Michigan, stated that “the
mismanagement of the crisis will be a classic case study around the world” after it became clear that VW’s
engineers knew about the ‘defeat’ device, but remained quiet (Milne, 2015). Nonetheless, VW admitted
that, for the third time, more vehicles were affected by the device, specifically the 3-liter TDI models from
2009 to 2016 (Bomey, 2015).
Furthermore, VW did not address their social media activity and continued to post-marketing
content, when they should have been focusing more on resolving the crisis (Bennet & Emrich, 2016). The
focus was not built upon regaining trust but pursuing future products. VW’s reputation suffered in Europe
as well. Although the organisation claimed they have done nothing illegal in Europe, the customers felt
ashamed and betrayed (Hakim, 2016). The Situational Crisis Communication Theory (Coombs & Holladay,
2012) argues that crisis managers should adapt the level of the response towards the stakeholders based
on the threat level. VW did not formulate a solid recovery strategy and did not judge the situation correctly
which lead to severe consequences. According to Schwartz (2018), the scandal has cost VW up to 27.4
billion euros in penalties, while shareholders claim another 9.2 billion.
General Motors’ Scandal Response
GM’s crisis started to escalate months over the initial foundation of the faulty ignition switches.
After the scandal started to be investigated, GM admitted the knowledge about the problem for over ten
years, thus being fined, investigated due to criminal activity and facing multiple lawsuits (Isidore & Marsh,
2014). The new CEO of GM, Mary Barra, appointed in January 2014, announced an internal examination an
apologized to the victims and customers (Ivory, 2014). Towards the end of the year 2014, the CEO
repeatedly used messages to repair the image with the use of apologies, actions to correct the wrongdoings
and compensations. Prior to the ‘repairing strategy’ used by the CEO, the initial response was a strategy
based upon denying the problem and its growth (Sellnow & Seeger, 2013).
One difference between the VW and GM scandal is the approach. While VW used a more reactive
approach towards the media and stakeholders, GM used a proactive approach with being honest,
transparent and open to the media and stakeholders (Seeger, 2006). Moreover, after the independent
investigation report was carried out, the CEO removed fifteen employees which were involved with the
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mismanagement of the issue (Higgins, Green & Plungis, 2014). Social media has played an important role in
the scandal response as GM appointed twenty people managing and responding to people’s concerns every
day, including the weekend (Goel, 2014). Some shareholders, Warren Buffett’s and Berkshire Hathaway
investment company, have shown confidence subsequently of GM’s CEO’s approach towards the crisis and
purchased another twenty-one percent of GM stock (Crippen, 2014).
In conclusion, GM’s CEO has handled the crisis successfully and was named the crisis manager of
the year by Fortune magazine (Geier, 2014). Nevertheless, the consequences of the crisis are more than
two and a half billion dollars (Stempel, 2017), 124 deaths and a recall of 2.7 million vehicles (Reuters, 2016).
Toyota’s Scandal Response
Toyota’s case of unintended acceleration and crashes leading to death began in 2007; however,
Toyota took four years and multiple misleading statements before acknowledge the problem and recall the
faulty vehicles (Heineman, 2014). According to Kalb (2012), Toyota at first did not know how to react to the
scandal gaining in ‘popularity’. Instead of handling the complaints after the investigation is done, Toyota
representatives started to comment on the events by advocating various causes in a short time span and
creating conclusions. First, Toyota addressed the problem to be the driver’s fault, which is a frequent cause
in self-acceleration issues. Next, the issue was the floor mats which trapped the gas pedal or “sticky” gas
pedals. Lastly, the electronics were to blame for the unintended acceleration.
Prior to the scandal, in 2009, there was a positive brand perception with 83% while the remaining
17% was negative. This data has showed a clear trustworthiness towards the Toyota brand. After the initial
recall of the vehicles, it triggered a negative trend which dropped the brand perception by 24% down to
59%. This trend is the dire consequence of the scandal, from which Toyota partially recovered throughout
the year 2012 (Kelly, 2012). The Birkigt & Stadler model of corporate identity (1986) shows the brand’s
image is seen in a particular setting as a manufacturer of quality products, meanwhile this image is altered
due to the crisis with the quality declining.
The results of the scandal wrapped up in a 1.2 billion dollar fine to avoid prosecution (Ross, Rhee,
Hill, Chuchmach & Katersky, 2014) and the market value declined by 20%, which is a 35 billion dollar market
value loss (Austen-Smith, Diermeier & Zemel, 2011).
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Figure 4. Toyota Consumers’ Brand Perception
2.2 Meso Environment
2.2.1 Market Analysis
The automotive industry does necessarily have a good name in the history of scandals. There have
been multiple cases excluding the sample examples where automotive car manufacturers have broken the
trust of the customers such as Takata’s airbag scandal, Firestone’s tires scandal, Audi’s unintended
acceleration scandal etc. (Sapienza, 2018). The market has shown that breaking the trust of the customers
resolves in a rapid drop in profit like VW’s 20% drop (Kollewe, 2016), GM’s 86% drop from its profit from
the same quarter a year ago (Levin, 2014) or Toyota’s 20% as well (Brauer, 2014). Although the loss of trust
might take years to repair, it definitely can be repaired (Dietz & Gillespie, 2012). As trust and reputation are
an important factor for the customers’ decision if they want to buy a car (Sandu, 2015), the previously
mentioned cases and sample examples did not put the greatest spotlight upon the automotive industry.
2.2.2 Stakeholder Analysis
According to Vos & Vos (2004) a stakeholder analysis is necessary to filter the stakeholders based
on power and interest criteria. The stakeholders are divided into four groups depending whether they have
a low/high power or low/high interest in the organisation’s activities. These groups are: manage closely,
keep satisfied, keep informed and monitor (as can be seen in Figure 4 below).
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Figure 5. Stakeholder Analysis Map
2.3 Macro Environment
2.3.1 Political Forces
The political forces are defined as government regulations which affected the automotive industry.
One of the regulations which was violated is the Clean Air Act from 1970, which controls how many
pollutants get into the air (United States Environmental Protection Agency, 2017). In the United States of
America, there was a new regulation set by the Obama administration for the Corporate Average Fuel
Economy program (CAFE) in August 2012 for fuel-efficiency. The new standard set was 54,5 miles per gallon
(mpg) by 2025 (Levitt, 2014). The government keeps new regulations coming towards the automotive
industry. The new standards aim to improve the fuel-efficiency and cut the greenhouse gas emissions as
seen in Figure 5 (Lutsey, n.d.). In addition to government regulations, organisations develop their own selfregulating environmental and social standards to support their CSR claims towards the stakeholders
(Lowrie, 2016). A study from Knudsen & Moon (2017) suggests that the government regulation of
organisations’ social and environmental actions are changing from the domestic to a more international
scale and instead of softer regulations to harder regulations. However, this might not be the case with the
relation of CSR with the Paris Climate Agreement, which aims to lower carbon emissions, in the United
States of America (Milman, 2018). Nevertheless, the withdrawal GM and Ford stated that they will pursue
in sustainability and creating a better environment (Tomolon, 2018).
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Figure 6. Milestones Toward Efficiency and CO2 Standards
2.3.2 Technological Forces
Technological Trends in the Automotive Industry
There are several trends as described by Gao, Kaas, Mohr & Wee (2016). In recent years, a rise of
interest in the autonomous cars have taken the world, but there are still some imperfections in the system.
However, after the issues with the technology and regulations are sorted out, the market might see a 15%
market share of autonomous cars in 2030. Overall car sales will continue to grow; however, at a slower
pace, from 3.6% to 2%. This is due to a trend in car-sharing or e-hailing. The main shift will be electric
vehicles gaining a competitive price, including hybrid vehicles, and it could the market shares from 10% to
50%. Although the electric vehicles will take more market share, the hybrid vehicles with combustion
engines will still be very relevant.
2.3.3 Economic Forces
A few aspects affect the economic balance of automotive industry within a country. The income,
gross domestic product (GDP), unemployment rates etc., all influence whether a car manufacturer will built
a factory or sell their products for that particular market. Likewise, the automotive industry has an impact
on the country’s economy. This includes the technology needed to produce cars, computer chips or the
resources needed for the design of the car itself, such as steel, textiles, plastics, rubber etc. (Henry, 2008)
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2.4 SWOT Analysis
After the micro, meso and macro environment analysis the SWOT analysis was visualised to identify
the key factors which contribute to the automotive industry. The SWOT analysis contains the strengths,
weaknesses, opportunities and threats of the automotive industry.
Figure 7. SWOT Analysis
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2.5 Conclusion
In conclusion, there have been certain weak and strong points in the scandal responses of the
sample organisations. The VW case has shown rapid publicity, while VW has not been prepared for a
scandal to break out. Although the crisis has been building up for years, VW did not show any signs of
preparation and the organisation started to crumble with the CEO resignation on September 23, 2015. VW
tried to regain the trust of the customers by offering a package. While it was not a bad tactical interference,
the overall strategy proved to be rather reactive, which in the end did not showed to be cohesive and
persuasive enough. In comparison, GM’s newly appointed CEO, Mary Barra, has chosen a proactive
approach which avoided the risks and increased transparency, timeliness & continuity towards the
stakeholders. The last case, Toyota’s unintended acceleration, at first, did not have a strong plan of solving
the crisis which lead to multiple deceiving messages and creating confusion between the stakeholders. Due
to irregularities and vague conclusions Toyota’s brand perception has dropped to 59% from the initial 83%
of positive brand perception.
The SWOT analysis has shown which factors were linked to the scandals. The opportunities of the
automotive industry: fuel-efficient vehicles, market expansion, environmentally friendly vehicles were
powered by the strengths of the automotive industry -both evolving industry and product innovation.
However, the weaknesses of such plans were government regulations, customer bargains and the growth of
the market. In the end, this lead for the crises to fuel the threats of large competition or overhead costs.
The sample organisations’ intentions of innovating and growing their market led to discovery of the faulty
parts of the vehicles, followed by the threat of customers leaving to competition, while losing the trust of
stakeholders.
The emerged bottlenecks, that will need to be research during the literature review, are: how to
handle stakeholders during a crisis, the key factors of effective crisis management, the development & role
of CSR and relation between CSR and financial performance, how to build & maintain a strong brand
perception (brand image & reputation), lastly, the examination of best practice.
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